Fed Rates Should Be Lowered by 150-175 Basis Points, According to Bessent

US Treasury Secretary Scott Bessent believes that current interest rates are overly restrictive and should be adjusted significantly lower to support the economy. Speaking during an interview with Bloomberg Television, Bessent suggested that the Federal Reserve may soon pivot toward a cycle of rate reductions, beginning as early as September.

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Rates Could Drop by 150-175 Basis Points

According to Bessent, the current stance of monetary policy is too tight, putting unnecessary pressure on growth. He noted that, by most economic models, interest rates should be about 150 to 175 basis points lower than where they stand today.

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“The Fed’s policy rate is restrictive enough that we’re likely to see movement soon,” Bessent explained.

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September Cut Could Be the Starting Point

Bessent hinted that the first adjustment could come in September, possibly marking the start of a broader easing trend.

“There’s a very good chance of a 50-basis-point cut,” he said. “We could be entering a sequence of reductions, starting with a half-point move in September.”

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His comments underscore growing expectations that the Fed will shift its focus from inflation control toward economic stability, especially as data signals a cooling labor market and softer consumer spending.

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Current Fed Policy and Market Reaction

At present, the Federal Reserve’s benchmark interest rate remains in a target range of 4.25% to 4.5%, where it has been held steady throughout the year. This level is widely considered restrictive, particularly as inflation has moderated from its peak and growth shows signs of slowing.

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Investors have been closely monitoring statements from policymakers for clues about the timing and magnitude of potential rate adjustments. A 50-basis-point cut in September would represent a more aggressive move compared to the quarter-point reductions markets had previously anticipated.

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Implications for Investors and the Economy

If Bessent’s projections materialize, lower rates could provide significant relief to borrowers and businesses while boosting overall liquidity in financial markets. Cheaper borrowing costs typically encourage spending and investment, potentially supporting corporate earnings and equity valuations.

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However, a sharp pivot to easier policy could also raise questions about the underlying health of the economy. Rapid rate cuts are often associated with concerns about slowing growth or rising financial risks. Market participants will be watching for additional signals from the Fed, particularly at upcoming policy meetings and in economic data releases.

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What Comes Next?

For now, traders are pricing in higher odds of an aggressive Fed easing cycle in the months ahead. If the first half-point reduction comes in September, as Bessent suggested, it could set the stage for a series of cuts extending into 2026.

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Such a shift would mark a major turn in the Fed’s strategy, following an extended period of restrictive policy aimed at taming inflation. For investors, the focus will be on positioning portfolios to capture opportunities in a potentially lower-rate environment while remaining mindful of macroeconomic uncertainties.

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